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The Bounds of ReasonGame Theory and the Unification of the Behavioral Sciences$
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Herbert Gintis

Print publication date: 2014

Print ISBN-13: 9780691160849

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691160849.001.0001

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The Mixing Problem: Purification and Conjectures

The Mixing Problem: Purification and Conjectures

Chapter:
(p.131) 7 The Mixing Problem: Purification and Conjectures
Source:
The Bounds of Reason
Author(s):

Herbert Gintis

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691160849.003.0007

Economic theory stresses that a proposed mechanism for solving a coordination problem assuming self-regarding agents is plausible only if it is incentive compatible: each agent should find it in his interest to behave as required by the mechanism. However, a strictly mixed-strategy Nash equilibrium σ‎* = (σ‎*1, ... σ‎*n) fails to be incentive compatible, because a self-regarding agent i is indifferent to any mixed strategy in the support of σ‎*i . This chapter deals with the solution to this problem. It concludes that, while ingenious justifications of the incentive compatibility of mixed-strategy Nash equilibria have been offered, they fail in a large majority of cases. It suggests that the solution lies in recognizing the power both of social norms and of a human other-regarding psychological predisposition to conform to social norms even when it is costly to do so.

Keywords:   coordination problem, game theory, Nash equilibrium, incentives, social norms

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